A financial transaction is any exchange or transfer of money or monetary value that affects a company’s financial position. These transactions are the foundation of all accounting processes and are recorded systematically in a company’s books to maintain accurate and transparent financial records.

Financial transactions can be classified into several types, including:

• Sales transactions, where goods or services are sold to customers.

• Purchase transactions, involving the acquisition of goods, services, or assets.

• Receipts, where the business receives money, such as from a customer payment or loan.

• Payments, including wages, bills, or supplier invoices.

• Investments and financing, such as issuing shares, receiving capital contributions, or repaying loans.

Each transaction involves at least two accounts and is recorded using the double-entry accounting system—where one account is debited and another is credited to keep the books balanced.

Accurate recording of financial transactions ensures reliable financial reporting and compliance with tax laws and regulations. These records feed into the preparation of financial statements like the income statement and balance sheet, helping stakeholders make informed decisions.

In summary, financial transactions are the building blocks of a company’s accounting system and essential for tracking business activity, ensuring transparency, and supporting financial planning.